Whether an appeal shall be barred by limitation if a party fails to obtain certified copy of judgment within limitation even if it is entitled to get free copy of judgment?

The import of Section 12 of the Limitation Act and its explanation is to assign the responsibility of applying for a certified copy of the order on a party. A person wishing to file an appeal is expected to file an application for a certified copy before the expiry of the limitation period, upon which the "time requisite" for obtaining a copy is to be excluded. However, the time taken by the court to prepare the decree or order before an application for a copy is made cannot be excluded. If no application for a certified copy has been made, no exclusion can ensue. In fact, the explanation to the provision is a clear indicator of the legal position that the time which is taken by the court to prepare the decree or order cannot be excluded before the application to obtain a copy is made. It cannot be said that the right to receive a free copy Under Section 420(3) of the Companies Act obviated the obligation on the Appellant to seek a certified copy through an application. 

The act of filing an application for a certified copy is not just a technical requirement for computation of limitation but also an indication of the diligence of the aggrieved party in pursuing the litigation in a timely fashion. 

 IN THE SUPREME COURT OF INDIA

Civil Appeal No. 3327 of 2020

Decided On: 22.10.2021

V. Nagarajan Vs. SKS Ispat and Power Ltd. and Ors.

Hon'ble Judges/Coram:

Dr. D.Y. Chandrachud, Vikram Nath and B.V. Nagarathna, JJ.

Author: Dr. D.Y. Chandrachud, J.

 Citation: 2021 INSC 663,MANU/SC/0956/2021.

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How proceedings under S 138 NI Act and Insolvency and Bankruptcy code affects each other?

  Insolvency Proceedings under IBC:

Scope:

• Insolvency Proceedings: These are initiated to resolve cases where companies or individuals are unable to repay their debts. The objective is to either restructure the debt or liquidate the debtor's assets to repay creditors.

Proceeding:

• For corporate debtors, insolvency proceedings are initiated by filing an application with the National Company Law Tribunal (NCLT).
• Once the application is admitted, a moratorium is imposed on the debtor, staying all legal proceedings, including suits and arbitration, against the debtor.

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Whether the Court of Additional Sessions Judge is Empowered To Try Offences Under Insolvency and Bankruptcy code?

 It may also be noted that Section 236(3) of the I.B. Code creates a deeming fiction that the Special Court trying offences under I.B. Code shall be "deemed to be Court of Sessions". If the intention of the legislature was that offences under I.B. Code are to be tried by the Sessions Court, then this subsection would have been unnecessary. According to the Petitioners, this is an indication as to the true and proper interpretation of Section 435 of the Companies Act, 2013 and Section 436 of I.B. Code. Thus for all the above reasons, the impugned proceedings have been instituted by the Respondents (Complainant) in the Court of Additional Sessions Judge, were not sustainable for want of jurisdiction. As a consequence order, 'issue process' passed by the learned Additional Sessions Judge against the Petitioners, in a complaint by the Respondents/Board was without jurisdiction and therefore not sustainable equally. It is therefore to be held that Special Court "which is to try offences under the I.B. Code is the Special Court established under Section 435(2) (b) of the Companies Act, 2013 which consists of Metropolitan Magistrate or Judicial Magistrate First Class. The Petition is therefore allowed in terms of prayer clause (a). {Para 14}

 IN THE HIGH COURT OF BOMBAY

Writ Petition No. 2592 of 2021

Decided On: 14.02.2022

Satyanarayan Bankatlal Malu and Ors. Vs. Insolvency and Bankruptcy Board of India and Ors.

Hon'ble Judges/Coram:

Sandeep K. Shinde, J.

Citation:- MANU/MH/0453/2022

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Bombay HC: Court Of Additional Sessions Judge Not Empowered To Try Offences Under IBC

Thus for all the above reasons, the impugned proceedings have been instituted by the Respondents (Complainant) in the Court of Additional Sessions Judge, were not sustainable for want of jurisdiction. As a consequence order, 'issue process' passed by the learned Additional Sessions Judge against the Petitioners, in a complaint by the Respondents/Board was without jurisdiction and therefore not sustainable equally. It is therefore to be held that Special Court "which is to try offences under the I.B. Code is the Special Court established under Section 435(2) (b) of the Companies Act, 2013 which consists of Metropolitan Magistrate or Judicial Magistrate First Class. The Petition is therefore allowed in terms of prayer clause (a).

 IN THE HIGH COURT OF BOMBAY

Writ Petition No. 2592 of 2021

Decided On: 14.02.2022

 Satyanarayan Bankatlal Malu and Ors. Vs. Insolvency and Bankruptcy Board of India and Ors.

Hon'ble Judges/Coram:

Sandeep K. Shinde, J.

Citation: MANU/MH/0453/2022

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Whether an Additional Session Judge can try offences under Insolvency and Bankruptcy Code2016?

  It may also be noted that Section 236 (3) of the I.B. Code creates a deeming fiction that the Special Court trying offences under I.B. Code shall be “Issue Process”, under Section deemed to be Court of

Sessions . If ”, under Section the intention of the legislature was that

offences under I.B. Code are to be tried by the Sessions Court, then this subsection would have been unnecessary. According to the Petitioners, this is an indication as to the true and proper interpretation of Section 435 of the Companies Act, 2013 and Section 436 of I.B. Code. Thus for all the above reasons, the impugned proceedings have been instituted by the Respondents (Complainant) in the Court of Addtional Sessions Judge, were not sustainable for want of jurisdiction. As a consequence order, ‘issue process’ passed by the learned Additional Sessions Judge against the

Petitioners, in a complaint by the Respondents/Board was without jurisdiction and therefore not sustainable equally. It is therefore to be held that Special Court “Issue Process”, under Section which is to try offences under the I.B. Code is the Special Court established under Section 435 (2) (b) of the Companies Act, 2013 which consists of Metropolitan Magistrate or Judicial Magistrate

First Class. The Petition is therefore allowed in terms of

prayer clause (a). {Para 14}

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CRIMINAL APPELLATE JURISDICTION

WRIT PETITION NO. 2592 OF 2021

 Satyanarayan Bankatlal Malu Vs  Insolvency and Bankruptcy Board of India,

CORAM : SANDEEP K. SHINDE

PRONOUNCED ON : 14th FEBRUARY, 2022.

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Whether Insolvency proceeding against a shipping company will bar a civil suit against its vessel?

The first argument canvassed by Mr. Arsiwala is that the present suit is not maintainable considering the bar contained in Section 33(5) of the IBC, 2016. 

22. What sub-section 5 of Section 33 of the IBC, 2016 contemplates is that subject to Section 52, when a liquidation order is passed against the Corporate Debtor, no suit or other legal proceeding shall be instituted by or against the Corporate Debtor. Section 52 deals with the rights of the secured creditor in liquidation proceedings. The proviso to Section 33(5) stipulates that a suit or other legal proceeding may be instituted by the Liquidator, on behalf of the Corporate Debtor, with the prior approval of the Adjudicating Authority. When one reads Section 33(5), it is ex-facie clear that the said provision prohibits the institution of a suit or other legal proceeding against the Corporate Debtor only. It does not in any way prohibit the institution of a suit or other legal proceeding against a ship/Vessel owned by the Corporate Debtor when invoking the Admiralty Jurisdiction of this Court. I say this because under the Admiralty Act, the Vessel is treated as a separate juristic entity which can be sued without joining the owner of the said Vessel to the proceeding. 

Bombay High Court

JUSTICE B. P. COLABAWALLA

Angre Port Private Ltd. Vs. TAG 15 (IMO. 9705550) & Anr.

INTERIM APPLICATION(L) NO. 112 OF 2021

3rd January 2022

Citation: 2022 NearLaw (BombayHC) Online 9

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Whether an appellant can claim condonation of delay in insolvency appeal if it has not made an application for a certified copy within limitation?

D. Conclusion

21. The answer to the two issues set out in Section C of the judgement- (i) when will the clock for calculating the limitation period run for proceedings under the IBC; and (ii) is the annexation of a certified copy mandatory for an appeal to the NCLAT against an order passed under the IBC – must be based on a harmonious interpretation of the applicable legal regime, given that the IBC is a Code in itself and has overriding effect. Sections 61(1) and (2) of the IBC consciously omit the requirement of limitation being computed from when the “order is made available to the aggrieved party”, in contradistinction to Section 421(3) of the Companies Act. Owing to the special nature of the IBC, the aggrieved party is expected to exercise due diligence and apply for a certified copy upon pronouncement of the order it seeks to assail, in consonance with the requirements of Rule 22(2) of the NCLAT Rules. Section 12(2) of the Limitation Act allows for an exclusion of the time requisite for obtaining a copy of the decree or order appealed against. It is not open to a person aggrieved by an order under the IBC to await the receipt of a free certified copy under Section 420(3) of the Companies Act 2013 read with Rule 50 of the NCLT and prevent limitation from running. Accepting such a construction will upset the timely framework of the IBC. The litigant has to file its appeal within thirty days, which can be extended up to a period of fifteen days, and no more, upon showing sufficient cause. A sleight of interpretation of procedural rules cannot be used to defeat the substantive objective of a legislation that has an impact on the economic health of a nation.

22. On the second question, Rule 22(2) of the NCLAT Rules mandates the certified copy being annexed to an appeal, which continues to bind litigants under the IBC. While it is true that the tribunals, and even this Court, may choose to exempt parties from compliance with this procedural requirement in the interest of substantial justice, as re-iterated in Rule 14 of the NCLAT Rules, the discretionary waiver does not act as an automatic exception where litigants make no efforts to pursue a timely resolution of their grievance. The appellant having failed to apply for a certified copy, rendered the appeal filed before the NCLAT as clearly barred by limitation.

 

Supreme Court

JUSTICE DR. DHANANJAYA Y. CHANDRACHUD JUSTICE VIKRAM NATH JUSTICE B. V. NAGARATHNA

V. Nagarajan Vs. SKS Ispat and Power Ltd.& Ors.

Civil Appeal No. 3327 of 2020

22nd October 2021

Author: Dr. Dhananjaya Y. Chandrachud, J.

Citation: 2021 ALL SCR (ONLINE) 588

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Under which circumstances Insolvency disputes are arbitrable?

The underlying principle, therefore, from all the above noted

decisions is that the reference to the triggering of a petition

under Section 7 of the IB Code to consider the same as a

proceedings in rem, it is necessary that the Adjudicating

Authority ought to have applied its mind, recorded a finding

of default and admitted the petition. On admission, third

party right is created in all the creditors of the corporate

debtors and will have erga omnes effect. The mere filing of

the petition and its pendency before admission, therefore,

cannot be construed as the triggering of a proceeding in

rem. Hence, the admission of the petition for consideration

of the Corporate Insolvency Resolution Process is the

relevant stage which would decide the status and the nature

of the pendency of the proceedings and the mere filing

cannot be taken as the triggering of the insolvency process.

25. As noted, the issue which is posed for our

consideration is arising in a petition filed under Section 7 of

IB Code, before it is admitted and therefore not yet an

action in rem. In such application, the course to be adopted

by the Adjudicating Authority if an application under

Section 8 of the Act, 1996 is filed seeking reference to

arbitration is what requires consideration. The position of

law that the IB Code shall override all other laws as

provided under Section 238 of the IB Code needs no

elaboration. In that view, notwithstanding the fact that the

alleged corporate debtor filed an application under Section 8

of the Act, 1996, the independent consideration of the same

dehors the application filed under Section 7 of IB Code and

materials produced therewith will not arise.  In that view, even if an application under Section 8 of the Act, 1996 is filed, the

Adjudicating Authority has a duty to advert to contentions

put forth on the application filed under Section 7 of IB

Code, examine the material placed before it by the financial

creditor and record a satisfaction as to whether there is

default or not. While doing so the contention put forth by

the corporate debtor shall also be noted to determine as to

whether there is substance in the defence and to arrive at

the conclusion whether there is default. If the irresistible

conclusion by the Adjudicating Authority is that there is

default and the debt is payable, the bogey of arbitration to

delay the process would not arise despite the position that

the agreement between the parties indisputably contains an

arbitration clause.

26. That apart if the conclusion is that there is default and

the debt is payable, due to which the Adjudicating Authority

proceeds to pass the order as contemplated under subsection

5(a) of Section 7 of IB Code to admit the application,

the proceedings would then get itself transformed into a

proceeding in rem having erga omnes effect due to which the

question of arbitrability of the so called inter se dispute

sought to be put forth would not arise. On the other hand,

on such consideration made by the Adjudicating Authority if

the satisfaction recorded is that there is no default

committed by the company, the petition would stand

rejected as provided under subsection 5(b) to Section 7 of

IB Code, which would leave the field open for the parties to

secure appointment of the Arbitral Tribunal in an

appropriate proceedings as contemplated in law and the

need for the NCLT to pass any orders on such application

under Section 8 of Act, 1996 would not arise.

27. Therefore, to sum up the procedure, it is clarified that

in any proceeding which is pending before the Adjudicating

Authority under Section 7 of IB Code, if such petition is

admitted upon the Adjudicating Authority recording the

satisfaction with regard to the default and the debt being

due from the corporate debtor, any application under

Section 8 of the Act, 1996 made thereafter will not be

maintainable. In a situation where the petition under

Section 7 of IB Code is yet to be admitted and, in such

proceedings, if an application under Section 8 of the Act,

1996 is filed, the Adjudicating Authority is duty bound to

first decide the application under Section 7 of the IB Code

by recording a satisfaction with regard to there being default

or not, even if the application under Section 8 of Act, 1996

is kept along for consideration. In such event, the natural

consequence of the consideration made therein on Section 7

of IB Code application would befall on the application under

Section 8 of the Act, 1996.

28. In the above background, on reverting to the fact

situation in this case, a perusal of the order dated

09.06.2020 would indicate that the Adjudicating Authority,

NCLT though has taken up the application filed under

Section 8 of the Act, 1996 as the lead consideration, the

petition filed under Section 7 of the IB Code is also taken

alongside and made a part of the consideration in the said

order. A further perusal of the order would disclose that the

Adjudicating Authority was conscious of the fact that

consideration of the matter before it any further would arise

only if there is default and the debt is payable. This is

evident from the observation contained in para 5.13 of the

order. The further narration made in para 5.14 would

indicate that the Adjudicating Authority, from the material

available on record had arrived at the conclusion that the

issue involved has not led to a stage of the default having

occurred and has rightly, in that context held that the claim

of the company by invoking the arbitration clause is

justified but the Adjudicating Authority has rightly done

nothing with regard to arbitration and has left it to this

Court. Accordingly, the Adjudicating Authority in para 5.15

has categorically recorded that they are not satisfied that a

default has occurred.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION (CIVIL) NO. 48/2019

Indus Biotech Private Limited Vs Kotak India Venture (Offshore)

Fund (earlier known as Kotak India Venture Limited) & Ors

Dated: March 26, 2021

Citation: (2021) 6 SCC 436, 2021SCCONLINE SC 268

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Supreme Court: Moratorium Ordered U/Sec.14 IBC Does Not Apply To Proceedings In Respect Of Directors/Management Of Corporate Debtor

At this juncture, we must however clarify the right of the petitioners to move against the promoters of the first respondent Corporate Debtor, even though a moratorium has been declared under Section 14 of the IBC. In the judgment in P. Mohanraj v. Shah Bros. Ispat (P) Ltd. (2021) 6 SCC 258, a three judge Bench of this Court held that proceedings under Section 138 and 141 of the Negotiable Instruments Act 1881 against the Corporate Debtor would be covered by the moratorium provision under Section 14

of the IBC. However, it clarified that the moratorium was only in relation to the Corporate Debtor (as highlighted above) and not in respect of the directors/management of the Corporate Debtor, against whom proceedings could continue. Speaking through Justice Rohinton F Nariman, the Court held:

“102. Since the corporate debtor would be covered by the

moratorium provision contained in Section 14 IBC, by which

continuation of Sections 138/141 proceedings against the corporate

debtor and initiation of Sections 138/141 proceedings against the

said debtor during the corporate insolvency resolution process are

interdicted, what is stated in paras 51 and 59 in Aneeta Hada [Aneeta

Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 :

(2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] would then

become applicable. The legal impediment contained in Section 14

IBC would make it impossible for such proceeding to continue or be

instituted against the corporate debtor. Thus, for the period of

moratorium, since no Sections 138/141 proceeding can continue

or be initiated against the corporate debtor because of a

statutory bar, such proceedings can be initiated or continued

against the persons mentioned in Sections 141(1) and (2) of the

Negotiable Instruments Act. This being the case, it is clear that

the moratorium provision contained in Section 14 IBC would

apply only to the corporate debtor, the natural persons

mentioned in Section 141 continuing to be statutorily liable

under Chapter XVII of the Negotiable Instruments Act.”

(emphasis supplied) We thus clarify that the petitioners would not be prevented by the moratorium under Section 14 of the IBC from initiating proceedings against the promoters of the first respondent Corporate Debtor in relation to honoring the settlements reached before this Court. 

 Reportable

IN THE SUPREME COURT OF INDIA

EXTRAORDINARY/APPELLATE JURISDICTION

SLP (C) No. 12150 of 2019

Anjali Rathi and Others . Vs Today Homes & Infrastructure Pvt. Ltd. and Others .

Author: Dr Dhananjaya Y Chandrachud, J

Dated: September 8, 2021.

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Whether liability of the Personal guarantor for Corporate debt will extinguish on approval of the Insolvency resolution plan?

  All creditors and other classes of claimants, including financial and operational creditors, those entitled to statutory dues, workers, etc., who participate in the resolution process, are heard and those in relation to whom the CoC accepts or rejects pleas, are entitled to vent their grievances before the NCLT. After considering their submissions and objections, the resolution plan is accepted and approved. This results in finality as to the claims of creditors, and others, from the company (i.e. the company which undergoes the insolvency process). The question which the petitioners urge is that in view of this finality, their liabilities would be extinguished; they rely on Sections 128, 133 and 140 of the Contract Act to urge that creditors cannot therefore, proceed against them separately. {Para 128}

129. In Vijay Kumar Jain v. Standard Chartered Bank67, this court, while dealing with the right of erstwhile directors participating in meetings of Committee of Creditors observed that:

“we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan as such resolution plan then binds them. Such plan may scale down the debt of the principal debtor, resulting in scaling down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt. The regulations also make it clear that these persons are vitally interested in resolution plans as they affect them”

130. The rationale for allowing directors to participate in meetings of the CoC is that the directors' liability as personal guarantors persists against the creditors and an approved resolution plan can only lead to a revision of amount or exposure for the entire amount. Any recourse under Section 133 of the Contract Act to discharge the liability of the surety on account of variance in terms of the contract, without her or his consent, stands negated by this court, in V. Ramakrishnan where it was observed that the language of Section 31 makes it clear that the approved plan is binding on the guarantor, to avoid any attempt to escape liability under the provisions of the Contract Act. It was observed that:

“25. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor.…”

131. And further that:

“26.1 Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor — often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor.”

132. In Committee of Creditors of Essar Steel (I) Ltd. v. Satish Kumar Gupta68 (the “Essar Steel case”) this court refused to interfere with proceedings initiated to enforce personal guarantees by financial creditors; it was observed as follows:

“106. Following this judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394], it is difficult to accept Shri Rohatgi's argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile Directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394], is set aside.”

133. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realize the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge under Section 134 of that Act. This court observed as follows:

 Under Section 128 of the Indian Contract Act, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Indian Contract Act by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability (see Jagannath Ganeshram Agarwala v. Shivnarayan Bhagirath [AIR 1940 Bom 247; see also In re Fitzgeorge Ex parte Robson [[1905] 1 K.B. 462]).”

136. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract.

137. For the foregoing reasons, it is held that the impugned notification is legal and valid. It is also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors). The writ petitions, transferred cases and transfer petitions are accordingly dismissed in the above terms, without order on costs.

In the Supreme Court of India

(Before L. Nageswara Rao and S. Ravindra Bhat, JJ.)

Transferred Case (Civil) No. 245/2020

Lalit Kumar Jain  Vs Union of India 

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Whether prosecution for dishonour of cheque is maintainable against Corporate debtor after the declaration of Moratorium as per S14 IBC?

 WHETHER NATURAL PERSONS ARE COVERED BY SECTION 14 OF THE IBC

102. As far as the Directors/persons in management or control of the corporate debtor are concerned, a Section 138/141 proceeding against them cannot be initiated or continued without the corporate debtor - see Aneeta Hada (supra). This is because Section 141 of the Negotiable Instruments Act speaks of persons in charge of, and responsible to the company for the conduct of the business of the company, as well as the company. The Court, therefore, in Aneeta Hada (supra) held as under:

“51. We have already opined that the decision in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] runs counter to the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is by a larger Bench and hence, is a binding precedent. On the aforesaid ratiocination, the decision in Anil Hada [(2000) 1 SCC 1 : 2001 SCC (Cri) 174] has to be treated as not laying down the correct law as far as it states that the Director or any other officer can be prosecuted without impleadment of the company. Needless to emphasise, the matter would stand on a different footing where there is some legal impediment and the doctrine of lex non cogit ad impossibilia gets attracted.”

xxx xxx xxx

“56. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons, whether juristic entities or individuals, unless they are arrayed as accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company. The learned counsel for the respondents have vehemently urged that the use of the term “as well as” in the Section is of immense significance and, in its tentacle, it brings in the company as well as the Director and/or other officers who are responsible for the acts of the company and, therefore, a prosecution against the Directors or other officers is tenable even if the company is not arraigned as an accused. The words “as well as” have to be understood in the context.”

xxx xxx xxx

“58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words “as well as the company” appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted.

59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada [(2000) 1 SCC 1 : 2001 SCC (Cri) 174] is overruled with the qualifier as stated in para 51. The decision in Modi Distillery [(1987) 3 SCC 684 : 1987 SCC (Cri) 632] has to be treated to be restricted to its own facts as has been explained by us hereinabove.”

103. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 of the IBC, by which continuation of Section 138/141 proceedings against the corporate debtor and initiation of Section 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paragraphs 51 and 59 in Aneeta Hada (supra) would then become applicable. The legal impediment contained in Section 14 of the IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Section 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Section 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.

In the Supreme Court of India

(Before R.F. Nariman, Navin Sinha and K.M. Joseph, JJ.)

Civil Appeal No. 10355 of 2018

P. Mohanraj and Others Vs Shah Brothers Ispat Pvt. Ltd. 

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Supreme Court: Once Resolution Plan Is Approved, No Creditor Can Initiate Proceedings To Recover Claims Not Part Of Resolution Plan

  In the result, we answer the questions framed by us as under:

(i) That once a resolution plan is duly approved by the Adjudicating Authority under sub­ section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;

(ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;

(iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued.{Para 95}

Supreme Court of India

Ghanashyam Mishra And Sons ... vs Edelweiss Asset Reconstruction ... on 13 April, 2021

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Whether the borrower can initiate an insolvency proceeding against the corporate person who is a guarantor regarding the loan account given to the partnership firm?

To get over this position, much reliance was placed on

Section 5(5A) of the Code, which defines the expression

“corporate guarantor” to mean a corporate person, who is the

surety in a contract of guarantee to a Corporate debtor. {Para 23}

24. Accepting the aforementioned argument of the appellant

would result in diluting or constricting the expression “corporate

debtor” occurring in Section 7 of the Code, which means a

corporate person, who owes a debt to any person. The “debt” of a corporate person would mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. The expression “debt” in Section 3(11) is wide enough to include liability of a corporate person on account of guarantee given by it in relation to a loan account of any person including not being a corporate person in the event of  default committed by the latter. It would still be a “financial debt” of the corporate person, arising from the guarantee given by  it, within the meaning of Section 5(8) of the Code.

25. Notably, the expression “corporate guarantee” is not defined

in the Code. Whereas, expression “corporate guarantor” is

defined in Section 5(5A) of the Code. If the legislature intended to exclude a corporate person offering guarantee in respect of a loan secured by a person not being a corporate person, from the

expression “corporate debtor” occurring in Section 7, it would

have so provided in the Code (at least when Section 5(5A) came to be inserted defining expression “corporate guarantor”). It was

also open to the legislature to amend Section 7 of the Code and

replace the expression “corporate debtor” by a suitable

expression. It could have even amended Section 3(8) to exclude

liability arising from a guarantee given for the loan account of an

entity not being a corporate person. Similarly, it could have also

amended expression “financial debt” in Section 5(8) of the Code,

“claim” in Section 3(6), “debt” in Section 3(11) and “default” in

Section 3(12). There is no indication to that effect in the

contemporaneous legislative changes brought about.

26. The expression “corporate debtor” is defined in Section 3(8)

which applies to the Code as a whole. Whereas, expression

“corporate guarantor” in Section 5(5A), applies only to Part II of

the Code. Upon harmonious and purposive construction of the

governing provisions, it is not possible to extricate the corporate

person from the liability (of being a corporate debtor) arising on

account of the guarantee given by it in respect of loan given to a

person other than corporate person. The liability of the

guarantor is coextensive with that of the principal borrower. 

27. In law, the status of the guarantor, who is a corporate

person, metamorphoses into corporate debtor, the moment

principal borrower (regardless of not being a corporate person)

commits default in payment of debt which had become due and

payable. Thus, action under Section 7 of the Code could be

legitimately invoked even against a (corporate) guarantor being a corporate debtor. The definition of “corporate guarantor” in

Section 5(5A) of the Code needs to be so understood.

28. A priori, we find no substance in the argument advanced

before us that since the loan was offered to a proprietary firm

(not a corporate person), action under Section 7 of the Code

cannot be initiated against the corporate person even though it

had offered guarantee in respect of that transaction. Whereas,

upon default committed by the principal borrower, the liability of the company (corporate person), being the guarantor, instantly triggers the right of the financial creditor to proceed against the corporate person (being a corporate debtor). Hence, the first question stands answered against the appellant. 

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2734 OF 2020

LAXMI PAT SURANA  Vs  UNION BANK OF INDIA 

Author: A.M. Khanwilkar, J.

Bench: A.M. Khanwilkar, Dinesh Maheshwari,B R Gawai JJ

Dated: March 26, 2021.

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Compendium on insolvency and bankruptcy code

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